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It's been a year since US Airways and United unveiled their proposed merger But delays growing losses and speculation that the deal may fall through have local airline workers angry and confused Sunday, May 27, 2001 By Jim McKay, Post-Gazette Staff Writer
It's been a year since US Airways and United unveiled their proposed merger. But delays, growing losses and speculation that the deal may fall through have local airline workers angry and confused.
One year has passed since United Airlines announced it would acquire US Airways for $11.6 billion and David Solyan still has no idea what the future holds for him and 11,800 other local airline workers.
"There's no sense of direction. Everything is up in the air. Everyone's morale is down," Solyan, a 15-year mechanic with US Airways, said last week outside a maintenance hangar at the Pittsburgh International Airport.
There's ample reason for confusion.
Even though both United and US Airways insist they remain committed to the complicated merger, a chorus of industry analysts are skeptical. They speculate that United may abandon the buyout or try to renegotiate the price in the face of a slowing economy, falling share prices and opposition from labor, consumer groups and politicians outside the region.
United, which has agreed to sell some assets -- including half of the US Airways East Coast shuttle operation to American Airlines -- to address anti-competitive concerns, says it continues to work with federal and state regulators.
"We are absolutely still committed to the merger," United spokeswoman Susana Leyva said. "We think this acquisition is in the best interests of our customers, our shareholders and our employees."
Although US Airways would not address analysts' speculation, its chairman, Stephen Wolf, has said he remains singularly committed to the merger. He publicly takes the position that Pittsburgh's dominant carrier faces a perilous future if the deal does not go through.
Wolf's argument is that mid-sized US Airways will founder alone. It is not a discount airline such as Southwest Airlines that flies from point to point, often avoiding direct competition with majors. A discount also is unburdened with hub-and-spoke systems that route flights through central airports. Nor is US Airways a truly nationwide network carrier such as United or American that blanket much of the country with flights.
There has been no public mention of alternative plans if the merger collapses. Several target completion dates have been missed, and now no decision is expected before the end of June. Either side can walk away if a deal isn't completed by Aug. 1, with United required to pay US Airways a divorce penalty.
"There doesn't seem to be a game Plan B" if the merger with United fails, Solyan complained. "Is Plan B to cut up the airline and sell it or is it to try and make a go of it? The government is at a standstill. We don't know what's going to happen."
An airline built on mergers
The waiting game is nothing new to local US Airways employees.
The airline, after all, is an amalgam of commuter airlines built on mergers. They include the former Lake Central and Mohawk airlines taken over by Allegheny Airlines, which was rechristened USAir before it purchased Piedmont Aviation, a southeastern carrier from Charlotte, N.C., and Pacific Southwest Airlines, a California carrier.
"We've been through a lot of mergers, a lot of uncertain times. I think we're real used to this," machinist Bill Hollowood said. In the past, "we've always come out the victor. This time, we're waiting for the other shoe to drop."
It's in Wolf's interest, of course, to cast the worst case possible if US Airways is unable to conclude the merger. Otherwise, regulators may be more willing to let the proposed transaction fall through.
Nonetheless, the portrayal of a doomed airline sticks in the craw of some US Airways employees who bought into Wolf's argument that the airline could grow its way into prosperity. He pledged, before the merger was announced, to transform US Airways into an "airline of choice" among consumers worldwide if labor unions would agree to new contracts that put labor costs in parity with major competitors.
And Wolf and his management team followed through on many of the promises by adding international flights, expanding the fleet and hiring more pilots. But instead of generating more money, the growth has come at a price, with profits falling from a record $1 billion in 1997 to a loss of $279 million last year -- its first annual loss since 1994, the low-water mark in a grim period of six straight annual losses.
Many of the airline's workers can't help but notice that the financial picture worsened after US Airways and United unveiled their merger plans on May 24, 2000. Indeed, the airline lost $171 million in the first quarter of this year alone -- a bad quarter for all airlines -- and has warned that results for the second quarter, typically one of its strongest, may be disappointing. Its stock price also has fallen by about half since the deal was unveiled last May.
US Airways President and Chief Executive Officer Rakesh Gangwal has said the airline is being hit from two sides: a weak economic environment that includes rising fuel prices, and expanding competition from low-cost competitors and larger network carriers.
But some members of the Air Line Pilots Association believe management may have dropped the ball by focusing so much on the merger at the expense of the rest of operations.
"We understand that management believes the merger is a good concept for US Airways and United, but we're concerned about how it's progressing," Roy Freundlich, a first officer and ALPA spokesman, said.
For example, hiring of pilots stopped around a year ago when the merger was announced. As a result, ALPA contends that the airline doesn't have enough pilots to keep all of US Airway's jets on schedule. Hundreds of flights were canceled between February and May, Freundlich said, adding that 42 flights were dropped in one three-day period in March alone for lack of crews and 73 flights were "precanceled'" between April 15 and April 30 for the same reason.
"The senior management team is singularly focused, preoccupied, with the merger and the operation is suffering for that," Freundlich said. "When the merger was announced, they said they were going to run the airline competitively. And now we find them basically not doing that."
Reasonable people can disagree about whether the merger will be good or bad for employees, argues Chris Fox, who represents reservations and gate agents as president of Local 13302 Communications Workers of America.
But Fox draws the line at portraying US Airways as a basket case, saying it is misleading to allege that 49,000 jobs are at stake. She calls US Airways viable, with attractive assets and capable employees.
"Poor us. We're going to lose 50,000 jobs if we don't merge," Fox said. "People are real antsy about it. They don't trust [Wolf]. Will he sell us off in bits and pieces? Is there going to be an airline left by the time he gets done and who's going to stop him?"
The merger with United was announced not long after the last of the airline's unions, the Association of Flight Attendants, agreed to a contract settlement based on the parity concept. Now their fellow AFA members are in a contract fight with United, and are using the merger as a tool to garner a better deal.
United's attendants marked the anniversary of the merger announcement by protesting in 10 cities where United flies and warning of possible strikes if the airline goes through with the merger without amending their contract. United this month said an arbitration panel ruled that its flight attendants were not entitled to a pay increase this year.
For their part, flight attendants in Pittsburgh bristle at the argument that US Airways must merge to survive.
"We know the airline is not failing given day-to-day operations," said Chris Dzadovsky, a flight attendant and spokesman for the AFA's Local 40 in Pittsburgh. "We're doing as good as we ever have and we believe we can grow and prosper because we're doing it right."
Dzadovsky, a self-professed student of the industry, points to rising load factors, the new fleet of more fuel efficient Airbus Industrie planes and more than $1 billion of cash reserves as reasons for his optimism that US Airways could survive on its own.
"Given the amount of money we've made in the five years prior to the loss, it shows we can do things right," he said, pointing the finger at the airline's decision makers. "It's management that needs to change."
One flight attendant who asked not to be identified for fear of retribution criticized Wolf for fixing up the airline by changing its name and painting the fleet -- much as you would vacuum and wax a used car to ready it for sale.
Wolf, after all, has a history of fixing up airlines before merging them -- he did that with the former Republic Airlines, which merged into Northwest Airlines, and in a way he did it at United, which was spun off to its own employees under a plan he helped hatch.
"He told us he was going to grow the airline from within," the flight attendant said. "He didn't tell us he was going to sell it out from under us. I'm scared. That would be the best way to describe it. Am I going to have a job? Am I going to have to relocate?"
The approximately 3,000 mechanics based in Pittsburgh have a lot hanging in the balance. If the merger goes through, United has committed to a $160-million plan to expand and overhaul maintenance facilities at Pittsburgh International Airport.
Frank Schifano, president of Local 1976 of the International Association of Machinists, has been pushing the project for several years to secure Pittsburgh as a central repair and maintenance facility.
"The merger itself in our minds is probably long-term stability and job security," since a new hangar would likely mean all or most of the maintenance jobs would remain in Pittsburgh, he said.
The IAM, currently in contract negotiations with United, has opposed the merger, saying its 60,000 members at United and US Airways would face consequences more appropriate to employees facing airline bankruptcies.
Schifano said the union, as part of its contract negotiations with United, is pushing the airline to put the commitment to the Pittsburgh expansion in writing.
"We need to make sure that we have our interests guaranteed because, obviously, when it's over, the leverage is gone," Schifano said.
Leyva, the United spokeswoman, dismissed that concern, saying the hangar expansion in Pittsburgh is a done deal as long as the merger is completed. "We won't do it if we don't own it," she said.
If the merger fails, Schifano said, he will take the expansion proposal, with the government commitments to financially participate, back to US Airways. He said it would still be a good deal.
"If it doesn't go through, we're all going to have to work hard times ahead," he said. "We'll see what happens. We're not going to fold up our tents or anything."
The conflict, of course, causes some anxiety and uncertainty on the shop floor, although mechanics point out that their occupation is mobile and in demand. They can move if the work moves, as can pilots and flight attendants.
"I think people are a little leery, a little scared. But I think people are optimistic that it will happen," Vince Mula, a lead stock clerk, said as several IAM members crowded around to give their opinions.
"The bottom line, really," said Dana DeSanzo, another IAM member, "is it's out of our control."
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